Employee Leasing vs PEO

June 16, 2017 / General
 
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Employee Leasing vs PEO

The PEO industry has been around for over 25 years and has dramatically evolved in that time period. When the industry first started it was often times referred to as employee leasing. In short employee leasing was a process by which companies would lease back their own employees from an employee leasing company. The employee leasing company would then take on all the administrative tasks associated with those employees. Workers' compensation, payroll, Human Resources (HR), and many other services were then the legal responsibility of the employee leasing company to provide to its new leased employees. One reason business owners enjoyed this type of relationship was to allow them to maximize retirement plans. Since the business owner now didn’t have employees or now just had less employees they could max out their 401k plan or other retirement plan and not have to match the leased employees. Eventually the IRS closed this loophole and the employee leasing industry had to evolve to address new needs of business owners.

Fast forward to present day and the word “employee leasing” is not really used in the market place. The new catch phrase is Professional Employer Organization or as it is more commonly known PEO. Today PEO’s are known for being a full service provider that offers an amazing array of products and services. A PEO can offer a small to mid size company the back office and benefits platforms of a Fortune 500 company. Now employers can provide best in class health benefits, 401k platforms, payroll systems, HRIS, time and attendance and competitive workers' compensation. The advantages of this relationship are that all of this is administered by the PEO through payroll. The only thing the business owner has to do is input payroll and pay the PEO for taxes, fees and services and the PEO administers all the rest. The business owner can now focus on running his or her company and rest assured a professional team of people is taking care of the non productive tasks associated with having employees.

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